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The Wind Tunnel Is Not Meant For Macroeconomic Testing

The Wind Tunnel Is Not Meant For Macroeconomic Testing

posted on
October 10, 2010

- Some big news this week from Cervélo. No, your eyes are not fooling you: Cervélo has made the decision to exit the realm of online sales, i.e. they’ve fired all of their online dealers, including Competitive Cyclist. We’re bummed here for sure. It’s not for the potential loss of business -- we’ll finalize our plans for filling the Cervélo financial void by lunchtime. The bike business is where we’re PRO, and this is akin to an ill-timed puncture, but no more than that. Our bummed feeling, rather, is because of our memorable shared history with the brand. Our star rose as an online retailer just as Cervélo really got its legs in the road marketplace. We grew a ton together, we did some fun collaboration, and we have substantial respect and affection for Gerard, Phil, Tom Fowler, and Dave Taylor. I give these four a big chapeau for what we accomplished, and I wish them well in their new strategy. Cervélo bikes are superb, and that fact will always shine through.

Not from Competitive Cyclist’s perspective, but rather from a larger business perspective: Is Cervélo’s decision a smart one? Time will tell, but it seems fraught with risk for several reasons:

(1) What is online sales? First and foremost, online sales is a tool for customer convenience. It means customers can order what they want, when they want. And it means they don’t need to worry about the inconvenience (and sometimes the impossibility) of traveling someplace to literally pick up their order. (UPS’ market capitalization is $67.25 billion. FedEx’s market capitalization is $27.22 billion. Why? It’s because they serve the role of concierge for consumers & businesspeople: They deliver goods to your doorstep and make logistics brainless.) The model that Cervélo is putting forth here -- order online, pick up at your retailer -- is not a substitute for authentic online retail because it’s a clear dismissal of the primacy of customer convenience. If you don’t have time to drive across town to pick up your bike; if you feel that your local Cervélo dealer is incompetent or uncommitted; if you feel like your local Cervélo dealer values your business less because you chose to order through a website, not their store; if you simply don’t like your local Cervélo dealer -- these are all reasons why someone will buy another brand or not buy at all. ‘Store pickup’ is a quarter-measure where nobody in the supply chain takes real ownership of the customer experience, and first and foremost it’s the customer who loses out.

(2) Timing. What we know is that brick & mortar retailers have a target on the backs of online retailers. All of their woes, they blame on us. The irrationality of their logic is a worthy topic of discussion, though we’ll save it for another day. Instead, let’s narrow things down to one key fact: By jettisoning their online dealers, Cervélo is extending an olive branch to their brick and mortar retailers, and reasonably should expect them to step up by significantly increasing their 2011 commitment to Cervélo.

As we all know, Trek and Specialized share a monopoly of brick & mortar showroom floorspace in North America. Any increase in a dealer’s Cervélo orders would have to come at the expense of one of these brands. The problem, though, is that dealers made their 2011 Trek and Specialized orders back in July. And the rest of the bike brands in the marketplace required their 2011 orders no later than Interbike. Dealers are already fully committed to their sales plans for 2011. Even if they wanted to reward Cervélo’s actions with more business, they no longer have the open to buy to do so.

Cervélo should’ve made this move back in May or June, giving their brick & mortar retailers something ‘positive’ to think about as they started planning for next year. Why didn’t they do so? Our guess is inventory risk: Cervélo had too much on-hand inventory to shed their online dealer base part-way through the season. Ironically, they needed their online dealers to help them turn their inventory, and they needed their online dealers as a potential outlet to flush year-end inventory in case sales were weak.

(3) The realities of American economic spending. Cervélo is decisively acting to de-emphasize the online sales channel, and to ingratiate themselves to brick and mortar dealers. By doing so, they’re doggie paddling into a macroeconomic high tide: All data shows that the US economy is continuing to suffocate. All data shows that the only silver lining is the powerful year-on-year growth in consumer spending in online retail. It’s probably over-reaching to say that brick and mortar retail is dying. But is it chronically, incurably diseased? Yes, and I’ll say a prayer for anyone staking the life of their business on it.

The guys at Cervélo are smart & crafty, so our conclusion is that this week they’ve taken only one step in a multi-step process. They’re clearing the decks in 2011 to roll out a full-blown consumer-direct online sales program shortly thereafter.

And then the final step (Cervélo isn’t even aware of it yet) will occur when they realize that going it alone in online retail doesn’t work. All great brands make their goods available in all sales channels (brick and mortar, catalog, online) because it gives primacy to consumer choice & convenience. And all great brands make their goods available online in multiple locations. Nike, Oakley, Patagonia, Apple -- you can buy their goods on their respective websites, and you can also buy them on the websites of high-profile online dealers. Why? Because it’s respectful of the customer, and because it’s good for business.

Expect to see a rocky year of sales for Cervélo in 2011. Then in an effort to remedy it, expect to see Cervélo selling direct to the consumer in 2012. And once that proves to be unmagical, expect to see Cervélo back here at Competitive Cyclist in 2013. It’s a certainty, and out of affection for the brand, for its heads of state, for our shared history together, and for the classy way in which they communicated the news to us about 2011, we’ll welcome them back with open arms.